|By Brian Gracely||
|March 11, 2013 10:00 AM EDT||
In my 20 years in the technology industry, I've found that there are three types of product/service strategy discussions that companies (vendors) have:
- "Our new product/tool will change the world." - Occasionally this happens, but more often that not it's just a feature that could be implemented on any existing platform.
- "Our new product delivers immediate value to customers and solves an existing (widespread) problem". Companies will typically pay money to solve problems, especially if it saves them money or unlocks a new market opportunity. Typically this creates a new market for the vendor. VMware ESX did this for many years. Consolidate servers, save money.
- "Our value is no longer distinct, so let's embed it into a suite/bundle with other things, and hopefully take a larger piece of the pie (customer's budget) that is currently allocated to somewhere else."
I've had the privilege to attend many VMware events in the past 4-5 years (PEX, VMworld, VMUG, etc.), and the theme of those events always seemed to fall into the #1 or #2 buckets. It's what created such a passionate following for the products and the company. It created a very unique, "wow, if I do this, then something better happens" moment for many companies.
But this year's event was different. It had a #3 feel to it. Many of the themes that had been critical to VMware (VDI, virtualizing Mission-Critical Applications, etc.) were now buried within "suites".
Overall, the value proposition to the customer was no longer obvious. Most notably by the VMware people that were presenting solutions like "vCloud Suite". The theme had shifted from "buy for value" to "buy for potential value, if we can unlock it".
Here's an example. I sat through a "How to sell vCloud Suite" presentation, given by the Director of Product Management for vCloud (apologies, I didn't catch the presenter's name). The audience was VMware partners, primarily their go-to-market partners (VARs/SIs). After introducing the pieces of the vCloud Suite, his pitch went something like this (paraphrased):
- Great job selling vSphere. 30-40% of most applications are virtualized. Sometimes more.
- We're not going to call it "Cloud" anymore. It's now called "Software-Defined Data Center" (SDDC). vCloud used to be the answer to "how to get to Cloud?". vCloud is now the answer to "how to get to SDDC?".
- Getting to high-levels of virtualization was a CAPEX story. Inefficient hardware. Save customers hard costs. Getting to SDDC is an OPEX story. Inefficient people and processes. Save customers unknown/soft costs.
- IT still isn't very efficient, mostly because storage and networking aren't virtualized and controlled (via VMware) like server virtualization. Get your customers to virtualize those things. (NOTE: How to do that is not covered in this presentation).
- Overall, IT still isn't operating very efficiently. Sell them vCOPs to figure out where there are more inefficiencies, like stranded VMs, poorly provisioned storage, poorly configured networks, etc.
The product manager then continued for another 30 minutes talking about how to sell the rest of the vCloud components, but he never did get around to a clear value proposition for the customer. There was some discussion about the need to run IT-as-a-Service, but in essence it boiled down to "it's a big problem, so here's a big software suite to sell them". A classic example of #3 strategy.
Another example of where VMware seemed to have disconnected value-proposition was the announcement of the VMware Cloud Credits program. It was touted as a great way to help customers budget for using public cloud services. On the surface, it appeared to potentially be helping the 200+ vCloud Service Providers, that Pat Gelsinger was quoted as saying, "What is really amazing -- we haven't done anything to earn that business". But when I dug deeper with their Product Management team, I uncovered some interesting details that weren't part of the announcement.
- Only available to existing vCloud-Powered SP. VMware decides who gets in the program; SP can't just opt-in.
- VMware choosing which vCloud-SPs are allowed to participate based on geography, verticals, unique offerings.
- The credits are sold independent of any vCloud SP. They basically operate like a gift-card.
- vCloud-SP gets no visibility into which customers have bought credits, or the Channel-Partners (VAR/SI) that sold credits. No opportunities to market their differentiation directly to end-customers via the program.
- vCloud-SP only gets visibility into end-customers once they are engaged directly with them, and then only Cloud credit-levels on that specific customer.
- Credits expire in 12 months. End-customers can extend credit lifecycle if already engaged with a specific SP.
- Unused credits can not be sold to other customers. Treated as a "license-agreement". No resale market will exist.
- Unused credits can not be returned to Partner or VMware for credit/money.
- vCloud-SP only gets revenue if credits are used.
- vCloud-SP must translate their existing services/service-level pricing into Cloud Credits (VMware creating some application-centric calculators).
So it's a potential revenue source for both the Channel partner and VMware, but the vCloud SPs are indirectly left out of the supply-demand loop. I can understand that VMware doesn't want their end-customers to get bombarded with marketing from the vCloud SPs because of this program, but that is already happening today. This seems somewhat unusual if the program is actually attempting to drive demand for those vCloud-based SPs.
Those are just a couple of example of the changes that I experienced at VMware Partner Exchange (PEX) this year. None of them are an indictment of VMware failings, but they do appear to be a strong indication that VMware's strategies are moving more and more towards #3. Given the size of their ecosystem and installed base, it will be interesting to see how they adapt to these shifts.
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